Final regulations: Change to section 83(b) election process

Change to section 83(b) election process

The Treasury Department and IRS today released for publication in the Federal Register final regulations (T.D. 9779) that change the process for taxpayers seeking to make an election under section 83(b) with respect to property that is transferred in connection with the performance of services. The regulations remove a requirement to submit a copy of the section 83(b) election statement with the taxpayer’s income tax return for the tax year in which the property was transferred.

Related content

The final regulations [PDF 198 KB] adopt regulations that were proposed in July 2015 as final, “without modification.”

While the final regulations eliminate a requirement that the taxpayer performing the services must submit a copy of the section 83(b) election statement with his or her income tax return for the tax year in which the property was transferred, the preamble to the final regulations includes a reminder of the general recordkeeping responsibilities of taxpayers and of the need to maintain sufficient records to show the property’s original cost and to support the tax treatment. A copy of any section 83(b) election made with respect to property also must be maintained until the statute of limitations expires for the return for which the income inclusion or basis of the property is relevant.

Effective date

The final regulations apply to property transferred on or after January 1, 2016. For transfers of property on or after January 1, 2015, and before January 1, 2016, the preamble to the proposed regulations provided that taxpayers may rely on the proposed regulations (which as noted by the preamble to today’s final regulations is “identical” to the guidance provided in the final regulations).

KPMG observation

Prior to the proposed regulations, many taxpayers wanted to file their tax returns electronically were not able to do so if they also wanted to make a section 83(b) election. Accordingly, the regulations remove this obstacle to e-filing.  

The rules under section 83(b)(2) require that the section 83(b) election be filed with the IRS no later than 30 days after the property is transferred to the persons providing the services. The section 83(b) election is scanned by the IRS Service Center receiving the election, and an electronic copy of the election is generated. Accordingly, the creation of this election copy of the section 83(b) election eliminates the need for the taxpayer to submit a copy of the section 83(b) election with his or her income tax return.

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